Daily Wrap

Today's most important Macro-Economic data point (actually the most important US data point for the week), Non-Farm Payrolls came in at a huge miss, breaking the 6 consecutive month streak of 200+ gains and at the worst of 2014 at 144k down from the previous (revised) 212k and on consensus of  230k! The NFP print was at below the lowest estimate at 190k in the range of 190-279k.

However, while bad news would normally be taken as good news, it's the "Slack" in the labor market Yellen is concerned with and just like all economic releases, the devil is in the details. The average hourly earnings gained 2.3% YTD and the average work week was strong at 34.5 hours, this is what Yellen is paying attention to and for the F_E_D's backdoor exit, the Labor Force Participation Rate Dropped to a Record low not seen since 1978 with 92.3 million people not counted in the employment rate which magically dropped from 6.2% to 6.1%.  As long as the number of unemployed keep growing, but are officially not counted, the unemployment rate will fall and the F_E_D has "officially" met their mandate allowing them to exit stage left as they are doing.

While one may here the talking heads saying the bad news was good news and pumped the SPX to a new record close, the truth in the matter is the SPX trend as well as the rest of the market is range bound which is the typical look of a topping reversal process. Here's the AVG's for the week...

 All just managed to close green for the week except the Russell 2000 (yellow), thanks to a late day USD/JPY & AUD/JPY ignition ramp.

However look at the SPX this week relative to $2000

 SPX this week relative to $2000 and now... look at the SPX for the last 2 weeks relative to 2000...

SPX last 2 weeks relative to $2000.

The Index futures completely ignored a 6 year high in USD/JPY last night, instead moving the opposite direction, down, but when they needed to close green on the week and recapture 2000, the carry trades lit up.

 USD/JPY ramping ES today...

And AUD/JPY doing the same.

The $USDX closed at 14 month highs on the week, largely due to Euro weakness after the ECB/Draghi policy announcement, but even before which is the opposite of what happened to the $USD under QE.

The one lever that tried to help the market the last two days for a small intraday run/support, HYG, failed as it is on its way to a lower low.

 High Yield Corporate Credit ultimately wanted nothing to do with anything that wasn't moving lower.

This is important because HYG leads the market as we know through various schemes including the SPY arbitrage with TLT and VXX.

 If you look at the las couple of weeks, HYG went from stage 22 rally to stage 3 top 4 days before the SPX and then spent 9 days in the range, then the SPX moved in to the range 4 days after HYG and has now spent 9 days in the range. HYG is leading the SPX by 4 days in stage 4 decline.

Interestingly, HYG bottomed and started up 5 days before the SPX at the early August base and spent 11-days in stage 2 rally as the SPX spent the same amount of time in stage 2 rally.  It would seem to me the Leading Indicator, HYG we've been using for years as such, probably should not be ignored.

HY Credit overall plunged this week and today as well, also wanting nothing to do with anything but down.

I mentioned TLT, 20+ year Bond ETF, well 30 year treasuries had their worst weak year to date.

Recall last week this post on 8/26, TLT / Treasuries

"Here's TLT, it looks like it's going to pullback"

In fact I asked somewhat rhetorically whether we might see a reversion to the mean between Treasury yields and the SPX...

It wouldn't take much except maybe the SPX making an effort to meet yields half way and judging by a number of factors, for the sake of this post lets just say HYG's lead, it seems highly plausible.

As far as other action today, I think I covered most of what I saw intraday today which was relatively boring. The SPX recaptured 2000 and a new ATH for the weekend, however all was not well with the market, even though quite a few of our trade set-ups are moving in the right direction just after they were posted so it looks like some timely entries. However I mentioned decaying breadth once again and PCLN was a fine example of why breadth indicators like "Percentage of NYSE Stocks Trading Above Their 200-day Moving Average" are falling again as PCLN slipped below its 200-day ma today on volume.

As far as internals, not much of note except 9 of 9 S&P sectors closed green with the defensive Utilities leading with a +1.25% gain and the risk on financials lagging with a +0.13% gain. The Morningstar sectors were close as well with 190 of 239 green,  however the Dominant Price/Volume Relationship among the component stocks of the major averages came in at Price Up / Volume Down which is the most bearish of the 4 relationships with 15 of the Dow 30, 52 of the NDX100 and 240 of the SPX.

Otherwise, breadth barely moved again, yesterday it turned down, today it stayed almost exactly in place, that's not a good sign when a small decline sends breadth significantly lower (new lows on the week) while a new ATH barely budges breadth.

As I said earlier, a head fake move in the averages is a high probability (a false breakout or failed breakout) and lord knows we have the range to attract one, however with the watchlist stocks giving strong strategic and tactical signals of their own, they've said more about near term market direction than the market.
 The point being, while a head fake move serves as an excellent timing marker as they typically occur just before a move to a new stage like 4 (decline) just as they did the day before the first day of rally for August, unless you are looking at inverse market ETFs, the watchlist stocks themselves are giving excellent signals.

I suspect we have a little more sideways chop and maybe that head fake move we anticipated for this week, however I strongly suspect we'll be in stage 4 decline sometime next week, if we use HYG's leading example, it should be sooner than later in the week.


Have a great weekend, I'm looking forward to setting up the rest of some good looking positions and letting them work.

The Week Ahead

Usually we'd have some very strong short term signals and we've been able to call the week ahead action pretty accurately, at least the trend, the timing may be off by a day or two.

I don't see anything that's standing out in the averages either way so if I had to make a call, I'd say more of the same, more lateral chop which in the cycle is stage 3 top/reversal process, the size of it vs. the size of the base is what we've observed numerous times in the past so nothing is out of the ordinary there. I saw a carry trade shoot up like a rocket last night and Index futures that would normally follow it tick for tick, completely ignore it. I've seen the second attempt at an HYG positive divegrence (short term) completely fail today and I've seen HYG lead the market consistently by 4 to 7 days, it's solidly in stage 4 decline.

A head fake move whether  a stop run or false breakout is very useful in timing for a downside or upside move, if you look at the averages and their early August base, almost all had a head fake/stop run just before entering stage 2 the next trading day. In this way a head fake move is very useful in timing entries in equities, however we already have very useful equities giving signals while stocks like PCLN, a market leader, completely ignore the market through this August move and instead move down and crack through its 200-day moving average today, the same kind of breadth deterioration I posted in last night's daily wrap (10 days of breadth improving off incredible lows, 11 days of no movement at all and yesterday a reversal back down just as PCLN is showing us today.

The ECB was a bust. For all intents and purposes, while the headline NFP print seems bullish, the components that Yellen is watching for came in strong so it's not going to derail what the F_E_D is doing.


HYG Credit is diverging negatively with the market this afternoon as are most other leading indicators.

I think we'll get our opening to the shorts, SCTY just hit another alert. I don't think it matters really whether the market can pull off a head fake or not, the assets we are looking at as trades, are doing what we need them to do.

Based on breadth, HYG and multiple other things noticed this week (no follow through, ECB flop, etc), I feel pretty strongly the market will enter stage 4 decline sometime next week and I think we'll be glad to have entered and filled out the shorts that we are looking at.

Quick AAPL Chart Update

This was a short term options (call) position I was considering yesterday, AAPL Call Possibility , however after watching the market and AAPL some more and considering the risk that I can't control before the market opened today, AAPL, EOD Action and Risk

Today's price action looks a lot like an options expiration max-pain pin, so I'm glad I waited, but this is still a speculative position. I used a longer expiration than I think I'll need, this has worked very well for me over the past several years, you don't make as much on the move, but the probability of success is much higher, so the expiration shouldn't be read in to beyond that.

I'm just going to use 3 charts...

 The volume on the downside is reasonable, it's the highest in months and my reasons (market makers caught at a loss) go hand in hand with this volume. As you know, I'm a big fan of candlekstick reversals on increasing volume, the second batch of very high volume we saw was a "tweezer Bottom" / support with two hammer-liek candles so I like that a lot as near term oversold / short term selling climax.

As I said above, today's price action looks a lot like a max-pain pin and AAPL is probably one of the most heavily traded weekly options.

The 1 min chart is positive and especially t the candlestick reversal signal. The 2 and 3 min are as well.

What is usually important to me for short term trades is that the 5 min chart is in line with the trade and this one is positive, both at the candlestick reversal signal and on a leading basis.

All in all,  I think this is a worthwhile speculative trade today, where as I didn't yesterday.

Trade Idea (Short Term Options) AAPL Call

That AAPL call position I was looking at yesterday, I'm going to go ahead and open that as a speculative position, which means about 1/3rd the normal size. I'm going with Sept 19/20th expiration and a strike of $96.

Market Update

Here's where we are in the staging process, "you have to know where you are to know where you're going" and this concept works on 5 min charts, 1 day charts or weekly charts.

We have the stage 1 bottom/base,  as we've seen consistently, bottom/bases in this kind or size move are always much together than the stage 3 top which is usually 2x as big. You can see the stage 2 mark-up trend line and when price's ROC started peeling away and moving sideways or the rounding top (sometimes a double top).

I hear "Blow-off top" a lot, and I've spent years studying all kinds of market bottoms and tops and sometimes there are sharp dips before a base breaks out which we'd call a head fake move, there's a small one below the red trendline on this chart. Sometimes there's a near steeple parabolic move at tops which I'd consider to be more of the blow-off top. Most of the time there's an "Igloo " rounding top with a "Chimney", a small area popping above the rounding top and that's the head fake move for a top reversal that's so common.

There's a question as to whether we get that or not, I've felt pretty strongly we would, but I've also seen a lot of weakness, a lot of leading indicators that have called every move in this cycle a week in advance like HYG just breaking down. Over night the Index futures absolutely ignored a cary trade (USD/JPY ) ramp to new highs. I really don't know whether the market gives it to us or not, I just know that a lot of the "Trade Set-ups" I've put out are primed for such moves, just a few minutes ago a couple I put out in the last 2 days gave me price alerts on the upside as expected and hoped for, they can do it without the market, but it's a lot easier with the market.

This being an op-ex Friday, the max-pain pin (yes, even on weeklies) is typically released around 2 p.m. and price acts a lot different than it did for the day up to that point.

Here's what I have in the averages, I'm not overly impressed with the signals and chances for a market head fake move based on them...

 This is about all the IWM has on the 1 min and most of it is from late yesterday.

 Looking at the 5 min, it is in leading negative position, but does have a relative positive divegrence that could be enough for a little head fake move,  but the concept of a head fake move is that it has to be convincing as it's job is to get buyers buying and they need to be motivated so a half hearted attempt is just as good as no attempt at all. If volume doesn't surge on the move, it's pretty much useless.

 QQQ 1 min, again the divergence was started yesterday afternoon and it has built on this morning.

However there's not much more than that, mush on 2 and 3 min charts and the 5 min is in leading negative position.

 SPY 1 min, again from yesterday and in line today, but this isn't much and pretty much used up.

The 3 min shows the same divegrence, it looks smaller her because the 3 min is a stronger timeframe and it is smaller, but still in line, again for the size of the divergence, it's pretty close to used up.

 SPY 5 min is in line with a slight leading position so maybe this adds some more in to the EOD and we have a green close and the SPX gets to keep 2000 over the weekend, but without coming back down and widening a base, I don't see much there.

HYG's initial divegrence failed and it moved to new cycle lows, there's a very small 2 min in place now.

However looking at the entire cycle as HYG has led the market, this 5 min chart doesn't look like anything more than bet on the downside so if the Carry trade levers aren't working and HYG just doesn't have it, I'm not sure how the market gets there.

HYG 30 min at new leading negative lows for the hear and the cycle accumulation, this is going to make a lower low and the market won't be far behind.

Intraday we have the TICK trend, it's getting a little sloppy here.

The Most Shorted Index is lagging badly, bellwethers like PCLN have broken below their 200-day m.a. today, it's just ugly.

The point I guess is look at the candidates that look like they can come to you, FSLR, SCTY, etc. and more I'm adding as I find them looking ready. I think these can get us where we want to be with positioning regardless of what the market does as long as they get to it before the market turns to stage 4 decline, then it's going to be hard to find anything moving up and  as of last night, breadth already turned down so I don't think it's long and I really don't think it matters if the market makes a head fake move or not other than entering some market ETFs or maybe some Puts.

I think keeping your eye on the ball, the bigger picture is getting increasingly more important right now.

PErsonally my positions are set except for a FAZ add to that I need to fill out, otherwise I'm set for the next cycle and I really don't think it's corrective. Look for an average like the Russell 2000 to break to it's neckline support around $1085 and it will happen a lot faster than the market has moved the last two weeks.

FSLR Position Management & Trade Set-Up

I haven't covered FSLR in a while, but as I go through my watchlist, I'm picking out the best looking opportunities right now.

I do see some 2 min positive divergence/accumulation in HYG, this is a lever to help the market as it has been extremely weak. How many times have we crossed above and below SPX 2000 over the last week or so with ZERO follow through? This isn't surprising from a staging/cycle point of view, however the head fake move as a transitional momentum creator (to stage 4 decline) is just such a strong concept, it's expected and as I mentioned, the watchlist stocks all show the same trend that looks like they are setting up for decline, but very short term, that pop or bull trap.

In any case, FSLR is a partial (more than half) position entered on 8/7 in to some market strength, Trade Idea: (Longer Term) FSLR , I purposefully left room in the position sizing and risk management for an add-to position at a later date.

The current position looks like this...

The position was entered at $68.46 and is at a -3.89% position loss, which is about a 0.2% portfolio loss, well within the risk management plan which could easily move to 10x that before it would be a stop out.

Since it has been so long since I last covered FSLR as I've been waiting for the ideal area to fill out the position, I'll cover it like I was for the first time.

The daily 3C chart shows there was a decent size base/accumulation (stage 1) zone in early 2012. It appears distribution set in on a scale that becomes interesting as a short during the formation of a large symmetrical triangle.

Many technical traders make the mistake of looking at a triangle of this size as a consolidation/continuation pattern, which would be appropriate for a triangle of about 2-3 weeks at most, but one that lasts most of 2014 is usually a top or a bottom (depending on the preceding trend, in this case a top.

For longer term members you may recall the gold-bugs of 2009-2011 (especially 2011). Saying anything negative about gold was like saying something negative about AAPL around the summer of 2012, traders were in love with these stocks and took anything negative as a personal affront. However, just as we called the AAPL top in 2012, we called the Gold top in 2011 (some of you may remember a fund manager I had been in communication with at the time and him basically reading me the riot act for suggesting gold may have topped), the defining feature of the gold top was the large symmetrical triangle.

 This daily chart of FSLR's triangle is really no different than almost any other triangle these days, whether a 2-3 week consolidation of even an intraday triangle or the small triangle in SCTY last week,  since these are such easily spotted price patterns and since they have such easy to remember technical implications, these are head faked almost all of the time.

In this case, I'm looking at an upside breakout from the triangle as that's what technical traders expect due to the preceding uptrend, the breakout from the triangle is what they'll expect and buy giving Wall St. types the demand and higher prices they need to sell in to or short in to.

As you see from the chart above this one, the daily 3C chart is leading negative at the triangle.


 The 4 hour chart is leading negative at the triangle

The 2 hour chart shows trend confirmation in to the triangle and then distribution at the triangle.

 The 60 min chart is more specific with distribution becoming stronger as the apex of the triangle is reached.

 The 30 min chart is even more specific showing the accumulation zones forming support for the triangle (I can't prove it, but I think a lot of these technical price patterns are purposefully created rather than randomly created as they serve a purpose and technical traders will bite every time).
We also see "in line or 3C, price/trend confirmation and distribution in to higher prices at the apex of the triangle.

The 10 min chart shows the accumulation zone, nearly the same as the broad market in early August, although a bit larger here, perhaps to maintain the shape of the triangle and distribution in to the move in to August the same as the broad market.

I can keep on going, but so far, EVERY timeframe confirms.

At the 5 min chart, this is about the best I have for an FSLR upside bounce, it's not much, really the head fake concept for the broad market as well as for a triangle in specific are the best and strongest evidence I have for a head fake move higher. In other words, we don't have any strong short term accumulation for a head fake move higher, it's mainly the probabilities of the concept, either way, it can't hurt for a new or add-to position.

 The 1 min chart shows accumulation on intraday timeframes leading to this week's pop higher and basically in line since.

I'll be setting price alerts above resistance of the triangle and above the apex so probably somewhere between $71.50 and $74 and of course looking for confirmation, but the multiple timeframes all negative above are strong evidence / probabilities that any short term pop to the upside fails and is useful to short in to for better price positioning, lower risk as a stop can be placed right above the entry and of corse as a head fake move, timing.

This is another one of the longer term position shorts that's looking great in this area for an entry and I'm taking very serious.

SCTY Trade Set-up (long term) / Follow Up

We've been tracking a potential bounce in SCTY which was first posted on Thursday of last week (8/28), SCTY Trade Set-Up. If you are not familiar with the longer term short trade set up, essentially shorting SCRTY which is already an open position with a little room to add, then the link from last week makes the case for the short with longer term charts as well as the expected bounce which we got a glimpse of yesterday (up +4.77% ). I think there's more to this move and would like to add to the position which is nearly filled out a SCTY sits at the top of a right shoulder, my second favorite place to short a H&S top.

The current open short was entered with the intention of phasing in and because of the good entry, it has left us in a good spot to add to SCTY as the current short position is at a gain of nearly +4% which isn't anything big, but for a lateral, choppy top it's  good entry.

Yesterday I posted a follow up to last week's SCTY trade set up, SCTY Update and market implications The "Market Implications" aspect of the post had mostly to do with going through the candidate watchlist and getting the overall feeling that the much anticipated head fake pop higher above the reversal process range as we usually see before a stage 3 market like this turns to stag e 4 decline, is still likely despite the weakness in the market picking up which is expected as the main trend is not the head fake move, that's a bridge, it's the move to stage 4 decline.

The shorter term chart for SCTY were addressed in yesterday's post as well as the follow up of how a short term head fake move works as it did in SCTY to create the momentum needed to push SCTY higher which it did, above the original post when we first saw a head fake bounce in SCTY coming last Thursday.

Here's today's update as I  like SCTY as a long term trend/position short and any bit of price strength is essentially a freebie, buffer or gift from the market, although they are emotionally hard to enter at the time as you are going against price. This is where the longer term charts as posted last week come in handy as they are the highest probability resolution for any short term moves.

Again, I would set upside price alerts for SCTY as there's a chance that today ends with a move to the upside in the afternoon (typically after the max-pain options expiration pin is lifted.

This is a mature H&S top at the right shoulder, in the larger trend / cycle this is very late stage 3, just before stage 4 decline which officially starts as we descend from this right shoulder top. The area I'm targeting for an add-to or a new SCTY short position is the red box to the right, approx. 470-475, but $80 would be even nicer. This is one of several equities that is in near perfect position for a position/trend short in terms of price, risk and timing.

Here's why I think we still have a good opportunity in SCTY, as far as why it''s a good opportunity, again, see last week's SCTY set u[p post linked above.

 This is the H&S from the perspective of a 30 min 3C chart, distribution started in to the left shoulder, picked up with a larger divegrence in to the head and is extreme in leading negative position at a new low in to the entire right shoulder run, this kind of sequential deterioration is exactly what we want to see in a top pattern and I post SCTY so often recently because the last really good entry has a very small window, thus the need for price alerts unless you just watch it all day.

 This 10 min chart is the basis of the entire move, as you can see it picked up short term accumulation in to a head fake move lower explained in the first post and yesterday's and it's still valid for the time being.

We will see deterioration of this divegrence set in on the fastest timeframes like this 3 min chart first as it makes its move higher, that's what we are looking for to short in to and even after the retracement of much of yesterday's gains, it's still in leading positive position which likely means the target range for smart money's shorting or selling is higher, I already mentioned where I'd be setting alerts, but these are not for information, they are for action.

This is one of the better looking shorts out there right now from a price, risk and timing perspective if you like position/trend type trades, although we can swing trade around this one too.

PCLN Update

PCLN has not been on the market's clock, it has not been on the same cycle as the market which is rare, in fact it has almost been on the exact opposite.

I'd love to see a bounce in PCLN to add to a position started some time ago, however I'm not counting on it. From a larger trend perspective, although PCLN is not at one of my favorite areas for shorting the stock, and while I'm really not very interested in chasing a move down of 2.84% today and -9.19% since the market's cycle transitioned from a stage 1 base to stage 2 mark-up on 8/11/2014, I will say that in the big picture of things, PCLN is still in a great area for the long haul.

The weekly chart of PCLN doesn't show the top pattern as well as the daily, but it does show the large negative divegrence in the oscillator  as 2014 has been a range (top) which you'll see below.

 In fact for the year, PCLN is only up +4% vs 2013 with a nearly 100% gain which should speak volumes itself.  

If you wonder as I'm sure many do, how it can be that market breadth as recently as the first week of August was at such a low level that only 20% of NYSE stocks were above their 40-day simple moving average around the same time the SPX is making all time new highs, all you have to do is look at stocks like former momo darling PCLN, the hard numbers don't lie, they aren't an interpreatation of an indicator. There are more stocks in this position than the market averages would indicate which is a very dangerous situation for anyone long anything market correlated like equities in non-defensive sectors.

 As recently covered (maybe I'll put up a link to properly using the Trend Channel which is the first custom indicator I won an award for), the Trend Channel is meant to be an objective stop indicator that keeps you in the trend until something changes and changes in character lead to changes in trends. The Trend Channel would have kept you long PCLN for nearly a 100% gain. As I said, a stop out in the TC doesn't mean there aren't additional gains to be had, it means the easy money, the trend is over and something else is about to emerge, which did in the form of a H&S-type top with a downside (moderate) target of $800.

 Here's the long term 3C chart during the top area through 2014 showing clear distribution, considering a nearly 100% gain the year before and a 4% gain for 2014, it's obvious there has been a significant change in character for PCLN and in the context of staging this trend, it is still stage 3 top with stage 4 decline not far away, I'd estimate PCLN will enter decline around $1140.

The hourly 3C chart shows confirmation of the last reasonable up trend in PCLN and a distribution cycle that has lasted nearly a year which would not be uncommon for a stock that has been in stage 2 for approx. 5 years coming from the mid-$50's.

 This shows the market's base from 8/1 to 8/8, at the same time PCLN was making a head fake high with severe distribution in to it, which is odd as most stocks will follow the ebb and flow of the market. I suspect this is another sign of relative weakness in PCLN.

There's a very small 2 min positive divegrence so you may want to set some upside price alerts for an entry or add to, but I would not be too concerned about over thinking this or waiting for significantly higher prices, I don't think we will see them.

I'll set some alerts as well just in case, but already have an open position from earlier in the year.

Opening Indications: Ukraine Cease-Fire

It appears, after many false starts, rumors and retractions, the Rebels and Ukraine president Poroshenko have signed a cease-fire agreement or at least the preliminary protocol in Minsk, to take effect 6 p.m. local.

Details of the plan, apparently being put forth by Putin are not immediately available, however numerous top political leaders including Merkel have all said the agreement has been signed, which may cause an end to Russian sanctions, at least any new sanctions which the EU desperately would like to see for economic reasons not to mention the possibility of winter natural gas prices rising as 1/3rd of European natural gas is imported from Russia who holds that as a trump card over EU sanctions which have hurt the EU economy and caused strife between EU/NATO countries, especially Germany and France.

Market reaction:Neutral.

We have the same chop that was in place shortly after the US Non-Farm Payrolls came out.

The opening indications which got no help at all from the Most Shorted Index have slight positives from yesterday's late day action (you may recall I was watching these to try to decide whether an AAPL call position was worth the risk)...

Gold, oil and Treasuries which had an initial knee jerk higher after the NFP this morning have stalled.

 SPY 1 min intraday positive divegrence forming from yesterday afternoon, however divergences in index futures don't look very good with the exception of r2K futures.

 The SPY (15 min) has seen serious damage on the week as the reversal process has been lateral around the 2k area for SPX most of the week.

QQQ 1 min

QQQ damage done this week, the same chart pointed out yesterday.

IWM 1 min small positive from late yesterday, index futures here may have a decent divegrence so this may be the one to watch early on.

However for the week, again, deep 3C damage in the reversal process area (30 mn chart).